Silicon Valley's obscure unicorns could boost 2017 IPO market

Fri Dec 30, 2016 2:23pm EST
 
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By Liana B. Baker, Heather Somerville and Lauren Hirsch

(Reuters) - Social media firm Snap Inc may be the highest profile tech IPO planned for 2017, with the potential to raise billions.

But more than a dozen expected stock offerings of relatively obscure software firms targeting business customers - little-known names such as Apttus, Tintri and Okta - could be just as important in thawing a long-frozen IPO market, according to investment bankers and advisers who work on IPOs.

Such firms are a "leading indicator" of broader investor demand for market debuts, said Justin Smolkin, head of Americas technology equity capital markets at UBS Group AG (UBSG.S: Quote).

"They tend to be viewed as cream of the crop, and where investors make the most money," he said.

Such enterprise software companies generally sell their services through subscriptions that produce reliable revenue streams. They aim to sign contracts lasting several years, giving investors more predictable returns than many Internet or consumer-oriented companies that depend on advertising or high volumes of individual transactions.

The firms provide a range of back-of-the-house services, such as automating business processes, security, accounting, training software and expense management.

Although such companies have moderate valuations, between about $500 million and $4 billion, the sector accounts for most of the tech IPO market, said Will Connolly, Goldman Sachs Group Inc's (GS.N: Quote) head of U.S. technology equity capital markets.

"Most of the technology IPO activity is actually not big, large-cap companies going public," Connolly said. "It's small and midcap growth companies going public that are innovators in their own markets and are helping drive the next generation of technology."   Continued...

 
The Wall St. sign is seen outside the door to the New York Stock Exchange in New York's financial district February 4, 2014.   REUTERS/Brendan McDermid